Gold & Gold Miners Rally From Lows

London (Oct 25) Gold and gold miners rallied the past three months from oversold levels. At the same time, the dollar, which tends to trade opposite gold, weakened perhaps on fading expectations for a Federal Reserve interest rate hike. Over the past three months, spot gold prices have popped 7%. But it remains down 5.4% for over the past 12 months as the U.S. dollar index surged 13% over the same period. Gold miners vaulted an eye-popping 17% the past three months. But they’re down 19% for the trailing year. It begs the question: How can you tell whether the recent uptrend is for real?

How to Tell Whether Gold Has Finally Bottomed

Gold has been down trending for four years since it peaked at $1884 an ounce in 2011. Gold is currently 38% below that epic high. The law of mean reversion alone suggests it eventually has to rise again to normalize.

The most gold has fallen over a rolling four-year period (not annualized) since 1971 was 40.85%, Aaron Gilman’s research found. He serves as president and chief investment officer of IFP Wealth Management, a division of Independent Financial Partners, Tampa, Fla. with about $6 billion under management.

“This drop is very similar in magnitude to the level it has dropped since 2011, which may lead some to conclude that gold does not have much more room to fall further,” Gilman says. “However as we are always taught, past performance is not necessarily indicative of future results.

On a short-term basis, the daily price chart for gold looks bullish. Over the past three months, it has been stair-stepping up, forming a series of higher highs and higher lows off of its summer bottom. Gold has rebounded from an August low of $1,086 an ounce to $1,164 an ounce as of Friday.